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But Kowloon East rents slip, on the back of increasing supply
HONG KONG, 21 June 2016 – Expansion requirements from the banking and finance sector in May underpinned leasing demand in the Central Grade A Office market, according to research in JLL's latest Monthly Market Monitor released today.
As of end-May, Grade A Office vacancy was tightest in Hong Kong East (0.8%) and Central (1.3%). With vacancy rates remaining at extremely low levels, rents in Central grew 1.2% m-o-m in May.
Banking and Finance Sector Drives Leasing Demand in Central
Notable transactions in the Central Grade A Office market included Julius Baer expanding into a whole floor at Two Exchange Square and China Orient Asset Management leasing a floor at One IFC. Still, net take-up in Central amounted to merely 17,000 sq ft owing to most transactions being concluded in space not immediately available, or vacant.
Tightening vacancy rates for office leasing Hong Kong saw rents in Central grow by 1.2% m-o-m to just over HKD107 per sq ft in May.
US-based co-working space operator WeWork further enlarged its Hong Kong footprint by committing to about 59,500 sq ft (gross) at Asia Orient Tower in Wanchai. This comes one month after it secured a lease at Tower 535 in Causeway Bay.
Net take-up in the overall market amounted to 102,600 sq ft, largely on the back of the realisation of pre-leasing and pre-sales activity at newly completed office buildings.
Rents in Kowloon East were under pressure from increasing supply side competition, contracting for the first time in 15 months, down 1.1% m-o-m.
Alex Barnes, Head of Hong Kong Markets at JLL, said: "Most transactions recorded in Central last month were negotiated on space not immediately available. Supply is so tight in Central that businesses are having to secure space before it physically comes vacant. This is most obvious at the premium end of the market where multiple parties are often competing for future space. We expect to see a significant increase in the volume and size of transactions in Kowloon East as new supply hits the market. Businesses are looking to the district to provide relief from higher rents, and the room to grow that cannot currently be found in tight core districts."
Denis Ma, Head of Research at JLL, said: "The recent uptick in Kowloon East vacancy is likely to continue over the near-to-medium-term with close to 2.4 million sq ft of new supply scheduled to be completed in the submarket over the next 18 months. Rents in Kowloon East are likely to remain under pressure over this period though tenant decentralisation may dampen the forecasted decline. Rental markets outside of Kowloon East, however, should remain resilient for the remainder of this year owing to the tight vacancy environment."
Source: Research, JLL
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